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California Takes Obamacare to a New Level as the Law's Fate Looms

The state is restoring the individual mandate and making an unprecedented effort to help the middle class afford health insurance.

California Gov. Gavin Newsom in a dentist's office.
California Gov. Gavin Newsom, right, pushed lawmakers to expand subsidies beyond low-income people.
(AP/Rich Pedroncelli)
As the fate of Obamacare hangs in the balance of the courts, California is leaning in to the health law more than any other state.

Democratic Gov. Gavin Newsom successfully pushed for an ambitious, first-of-its-kind policy to make health insurance more affordable for the middle class.

While former President Barack Obama's signature health reform has helped 12.3 million mostly low-income Americans gain insurance, many Americans are still left with high premiums that they struggle to afford.

“California has had relatively stable premiums over the past couple of years, but there are still people for who it was still too expensive,” says Shannon McConville, senior research associate at the Public Policy Institute of California, a nonpartisan think tank.

Newsom signed a $215 billion budget last month, his first as governor, that addresses this problem in two ways.

 

'A Spoonful of Sugar to Go With the Medicine'

First, California is reinstating the individual mandate -- the ACA requirement to have health insurance (or face a tax penalty) that was repealed by the 2017 federal tax overhaul. Starting next year, Californians who go uninsured will owe the state $695 come tax time, or 2 percent of their household income -- whichever is higher. (Only New Jersey and the District of Columbia have passed their own individual mandates since Congress eliminated it.)

At the same time, the state will drastically increase the number of people who are eligible for ACA subsidies to help buy insurance on the marketplace. The subsidies will now be available to Californians who make up to six times the federal poverty line, which means $75,000 for an individual and $154,500 for a family of four. Currently, the subsidies are capped at 400 percent of the federal poverty line, which is roughly $50,000 for a single person and $103,000 for a family of four.

Critics of the change, including Republicans in the state legislature, argue that six-figure-income households shouldn't need subsidies.

But Sabrina Corlette, a research professor at Georgetown University's Center on Health Insurance Reforms, says "when we’re looking at premiums that could be $1,000 a month, that becomes unaffordable really quick."

The state is also helping those who already qualify for subsidies. It's giving an extra $10 a month to people making between 138 percent and 400 percent of the federal poverty line and eliminating premiums for people who make less than that. 

Corlette describes the expanded and increased subsidies as a “spoonful of sugar to go with the medicine,” which is the individual mandate in this case. But, they have an expiration date of three years -- unless the legislature decides to renew them -- and the mandate does not.

 

Costs and Savings

The state estimates this policy will save the newly eligible population an average of $100 a month and subsidize health insurance for 840,000 additional Californians.

All of this is an expensive proposition for the state. The estimated cost over three years is around $1.5 billion. The state plans to pay for the expanded access using general fund money in the first year, and with revenue from the reinstated tax penalty in the remaining two years. 

As history shows, sometimes help isn't enough.

Even though people earning less than $50,000 a year already qualify for subsidies in California, that population accounts for more than half of the state's tax penalty payments, according to the Public Policy Institute of California. 

McConville, from the Institute, says the state needs to improve its outreach to make sure people know they're eligible for subsidies and to make it easier for them to take advantage of them. 

 
For their part, California Republicans argue that further embracing the Affordable Care Act is a waste of state resources.

"We’re putting gum and MacGyvering Band-Aids on this system. It needs to be redone and reviewed top to bottom,” said GOP state Sen. Andreas Borgeas at the Sacramento Press Club in March.

Depending on the outcome of a case argued in court this week, Borgeas may get her wish.

The 5th U.S. Circuit Court of Appeals is hearing a case on the Affordable Care Act, which a federal judge struck down in November. If the appeals court upholds that ruling, the entire ACA -- and the subsidies that it established -- will be in jeopardy. 

 
This appears in the Health newsletter. Subscribe for free.

Mattie covers all things health for Governing.

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